Fiscal independence of the health insurance system. Anneli Ratnik State Budget Department, Chief specialist



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Fiscal independence of the health insurance system Anneli Ratnik State Budget Department, Chief specialist

Main sources of health financing Estonian health system is largely publicly financed through an earmarked tax on wages the social tax. Around two thirds of total health financing comes from the social tax. Approximately 10% comes from central government budget. Under 15% of health financing comes from private sources.

The social tax The social tax is levied four categories: wages paid by employers (about 95% of total social tax revenues) benefits in kind (about 2%) tax paid from the state budget on behalf of some socioeconomic groups (about 2%) the earnings of self - employed people (about 1%)

The social tax The social tax on wages is paid by employers at a rate 33%, of which 13% is transferred to Estonian Health Insurance Fund and 20% to pension insurance schemes. The rates have not changed since 1992. Social tax is not levied from dividends, deposit interests, capital gains and rental income thus health financing relies on labour taxes and direct payments by households with capital taxes having a minor role.

Public revenue collection and pooling The social tax is collected by the Estonian Tax and Customs Board. Health part of social tax is pooled by Estonian Health Insurance Fund, an independent and autonomous agency responsible for purchasing health services on behalf of its members. The central government finances services available to the whole population such as emergency care, public health programmes and immunization.

Public revenue collection and pooling Estonian Health Insurance Fund covers about 95% of population. Contributors account for about half of all insured people. Non-contributing account groups including children, pensioners, disability pensioners and students are eligible for the same benefit package without any social tax contribution. The state covers about 3% contributions of population (individuals on parental leave, unemployed and carers of disabled people).

Estonian Health Insurance Funds budget Estonian Health Insurance Funds budget is determined by the amount of revenue generated by the part of the social tax earmarked for health. Health Insurance Funds budget is approved by its supervisory board and based on four-year revenue and expenditure planning principals. Because Funds budget depends through social tax on the state budget, it cannot be approved before the state budget has been approved.

Health Insurance Funds reserves The cash reserve administrated by the State Fund ensures smooth daily cash flow management. The legal reserve 6% of budget (created by transferring at least 2% of the budget every year), decreases risk from macroeconomic changes. The risk reserve, 2% of budget, minimizes risks arising from health insurance obligations and can be used after supervisory board's approval.

The role of Ministry of Finance Minister of Finance is a member of Estonian Health Insurance Funds supervisory board. The goal of Ministry of Finance is to follow the use of legal reserve and to ensure that Health Insurance Fund s budget four-year revenue and expenditure planning principals are in line with national budget strategy.

The role of Ministry of Finance The share of state budget for the health sector is prepared by the Ministry of Social Affairs. Ministry of Finance set s budgetary ceiling for Ministry of Social Affairs based on legislative obligation and government priorities.

Strengths and weaknesses of Estonian health financing policy The single payer system has served well since it was established in the early 1990s. Central revenue collection and national pooling contribute to efficiency in resource use. The separation of health from other forms of social insurance helps to ensure transparency and accountability of the system to the public. Weakness is the lack of central control over capital investment and expensive medical equipment.